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Cash-strapped Amey retreats from £3bn defence PFI

City fears grow as support services group decides not to take on equity stake in two barracks upgrades.

The financial position of support services group Amey took a further blow this week as it announced that it was withdrawing as an equity partner from the UK's largest defence PFI.

The firm said it was in discussions with partner Bovis Lend Lease to pull out as financial partner from the £3bn projects to upgrade the Allenby barracks in Salisbury, Wiltshire, and the Connaught project in Aldershot, Hampshire.

The firm stressed that it would remain as a member of the bidding team. A spokesperson said: "Amey remains heavily involved in the bid with regards to the service provision of the project."

A statement from Bovis Lend Lease said: "We are reviewing what equity provision for this project will add best value to our bid. The terms of that are commercially confidential."

Amey denied speculation in January that it was to withdraw from the scheme.

The move is the latest twist in the bidding for the massive PFI project. Jarvis pulled out in October, leaving Bovis' team in competition with a consortium that includes Mowlem and Brown & Root.

Amey's move came a week after the firm released the shareholder circular that completed the sale of its PFI contracts to Laing for £29.1m.

We’ve been affected by a write-down but we don’t expect this to recur

Amey spokesperson

The circular received short shrift from stockbroker Seymour Pierce, which issued a note describing it as "the group's third profit warning in less than three months". This was because the firm predicted that its exceptional charges for 2002 had risen from £110m to £115m.

The note concluded: "We believe the company is now on the critical list and believe that there is still a risk of further write-downs."

The note said that there were doubts that Amey could find the £60m it needed to become an equity partner of Tube Lines, the consortium taking over part of London Underground. It added that Amey's financial situation might also prevent it winning other long-term contracts.

An Amey spokesperson denied that the circular was a profit warning, saying that basic profit for 2002 would remain the same.

The spokesperson said: "We've been affected by an exceptional write-down but we do not expect this to recur in 2003. We are rebuilding by reducing the cost base, but we have a strong order book."